Record Industry Woes Aggravated by Years of Bad PR

By Richard Menta 8/2/07

They say no publicity is bad publicity, but that's not true. Ask Atlanta Falcon quarterback Michael Vick whose alleged involvement in a dog fighting ring just got him banned from training camp by the NFL, a move that alone may end his career even if the courts never convict him. In a letter to Vick second-year NFL commissioner Roger Goodell stated "While it is for the criminal justice system to determine your guilt or innocence, it is my responsibility as commissioner of the National Football League to determine whether your conduct, even if not criminal, nonetheless violated league policies, including the personal conduct policy."

That's a definitive statement, one that emphasizes Goodell's concern over the NFL's public image and the measures he is more than willing take to keep that image clean. Executives like Goodell know that the image of any industry or company directly affects its brand and therefore its viability in the marketplace and they put a high priority on protecting that image. One only has to look to Apple if they need an example of what a powerful brand image can do for a company to understand how important it is.


Richard Menta

If Goodell is worth his salt he closely monitored public opinion in the Vick case. That's because brand IS consumer perception and public passion or indifference to any issue is core to this. Of course, sometimes corporations are too willing to please the masses and in the process do the wrong thing. Goodell is being careful not to do that, which includes asking the Falcons to refrain from any immediate disciplinary action of their own. Today's sports fans are as passionate as music fans and franchises from the NFL to NASCAR tread very carefully to preserve that emotional connection between their respective leagues and the consumer who pours billions of dollars each year into them.

In the case of Michael Vick the fans and the press are overwhelmingly against him, which I'm certain had strong bearing on Goodell's decision to keep Vick away from camp as it had the potential to create considerable disruption. But, if the public had shown strong support for Vick instead, then I suspect Goodell would have allowed Vick to attend camp to preserve the appearance of normalcy. This underlies the power of consumer perception and the added difficulties if it appears in the extremes of fawning obsequiousness or a mob mentality.

When Intellectual Property Protection Efforts Generate Bad PR

Over the past several years MP3 Newswire has made numerous comments regarding the growing consumer enmity against the major labels and its Washington lobby the Record Industry Association of America (RIAA). An acrimonious disjoint between that industry and the consumer over advances in content distribution has arisen, one that I argue is having a devastating effect on the major labels. Yet the actions of this industry, unlike that of the NFL, are harshly confrontational to the feelings and opinions of the consumer.

One of the things that I find most curious about this disjoint and the negative public relations it creates for the major labels is how so few have written about it. I believe I do know why. It's because the topic is an elusive one when it comes to accurately measuring its effect. After all, when CD sales drop 15% in a quarter can you honestly attribute 5% of that drop to bad PR, 5% to file sharing and 5% to the incursion of film DVDs into record stores? And yet, how many industries of late have managed to generate such genuine consumer hatred over the last several years? As Mr. Goodell knows, just because it is difficult to isolate an effect from other factors pressuring the business does not mean it has no bearing.

Today the major record labels don't have a positive brand image and the very public actions they have taken to control the rise of digital media and the Internet over the last several years is at the very heart of their fall from grace. To some the big labels are an anachronism. To others they are anti-consumer. The erosion of their image is dramatic and while we have seen plenty of polls attempting to gauge consumer thought, any attempt to apply sales figures to such measurements is elusive. That's what makes things scary for executives like Goodell when a carefully nurtured public image comes under duress. Just look at how BALCO tainted baseball and Barry Bonds run for the home run record. Will the Major Leagues ever be able to quantify how much it has cost their business? On an individual level, will they ever let Mark McGuire in the hall of fame?

The major labels have taken to blaming file sharing for all ills. In reality, file sharing is just one piece of a more complex puzzle that is still shaping itself as new technologies and digital strategies reshape the media landscape as a whole. To rely on file sharing as the universal scapegoat may have only served to distract label management from a much larger schism that hits at the heart of the traditional label/artist/ model. This includes the rise of tools that have empowered the artist directly like MySpace and YouTube.

Indeed, the concept of a major label in itself appears to be sliding towards obsolescence, though it is clear that new technologies have brought new opportunities. Unfortunately, the majors so far have shown poor ability to roll with change as they struggle to diversify their business. Meanwhile, sales of physical product, of which so much of their business is presently wrapped around, continues its steep descent.

But the argument here is that the CD may not be dropping so steeply had the consumer not developed a bad taste for it. Yes, there are valid complaints against the CD format that have nothing to do with PR and brand, but we are not portraying negative PR as a sole cause, just one of several that carry significant influence over the joy, and therefore value, we receive when we make a purchase.

Whether one public event is enough to deter that impulse buy is highly debatable, but over the last several years the record industry has had numerous public confrontations and business miscues that in combination offer an insightful and ominous clue to the fading fortunes of Sony BMG, EMI, Warner Music Group, and Universal Music Group. Here is a recap of some of them.

1. Major labels sue Rio - In 1998, a year before Napster's appearance, the industry thought intellectual property protection could be achieved by suppressing technology. That year the Diamond Company shipped Rio PMP300, the second MP3 player to hit the market and the first to player sell 50,000 units, an impressive achievement at the time. It was the success of the Rio that convinced many that digital music was the future, and before long, dotcom money poured into online digital music initiatives and start-up MP3 portable companies. The major labels sued Diamond saying that the Rio was nothing more than a tool for IP theft. The courts disagreed and ruled in favor of Diamond. Nonetheless, this case heralded a sad new era in technology where innovation bred litigation.

2. Record industry calls its customers thieves for file sharing - not exactly the best way to sell the public a valid argument that this new form of music acquisition should require some type of remuneration.

3. Major labels sue Napster - Nothing did more to promote the original Napster and the virtues of file sharing than the Napster trial. Users loved Napster. By the time Napster met its demise at the hands of the big labels they hated the record industry.

4. Sony opens the first online store to sell major label downloads - The power of the digital content is that it is extremely cheap to replicate and deliver and the digitally savvy users targeted by the early online music download stores knew this. When Sony opened the first store to sell major label downloads they showed no desire to pass any of these savings to the customer, in fact they charged a premium, selling each track for $3.49. The store only sold singles so to replicate a 15-track CD cost over $50. It was a very poor value to consumers already complaining that $16 CDs were overpriced. The addition of a frustrating DRM scheme made Sony's venture looked completely out of touch with the technology and the venture quickly failed.

5. Digital Rights Management - The intent of DRM is to protect intellectual property, but the way it has been used with regards to recorded music goes beyond that to a point where it interferes with the consumers ability to enjoy the music. Restrictions imposed by the technology go beyond protecting tracks from being traded online. It is used to lock consumers to proprietary technology. It is used to breech privacy. It is used to control supply and push higher prices. It is used to undermine practices we have long defined as fair use so they can be shifted to fee-based. As DRM-laden consumers begin to mix digital devices from different manufacturers and sources, restrictions imposed by DRM become more visible. All of this is made worse by the fact that suppliers (the record and movie companies), vendors (Apple, Napster) and device makers (Apple, Sony, Microsoft) each promote their own take on DRM with conflicting goals. Interoperability is discouraged. Consumers are discontent.

6. Lars Ulrich delivers names of 335,435 Metallica fans to ban from Napster - It's one thing to rail against the tyranny of the corporate suits, but it's another when one of your heroes rats you out. Lars and his band mates felt violated when a rough demo of Metallica's song "I Disappear" appeared on Napster. The band demanded Napster remove all copies of their music from the service to which the service replied that they could not filter music, only eject users identified as copyright violators. To Napster's surprise Metallica did just that, compiling a third-of-a-million names pulled from the Napster client itself, printing it on 60,000 pages and laying the whole pile on Napster's doorstep to remove. The move hit the press in a big way and now it was the users who felt violated. Unfortunately, the band suffered an awful backlash for their actions. They were portrayed as greedy artists with some critics spelling Ulrich's name as "Lar$". Ulrich's appearance in a Napster parody during the 2000 MTV Video Music Awards partially defused the issue - the group eventually settled with Napster - but it was now quite clear that file sharers were not as anonymous as they assumed.

7. Major labels sue MP3.com - MP3.com's downfall came when it created a new service called My.MP3.com. My.MP3.com was essentially audio place shifting several years before SlingBox created video place shifting. The difference was that with Slingbox users take a direct feed from their personal cable box. My.MP3.Com, on the other hand, stored copies of every album on its servers and if the user could prove they owned that album with an application called Beam-it they could access the music as a stream from anywhere they had a connection. The major labels sued and the courts ruled that MP3.com's act of copying and storing files for the service violated copyright. Rather than appeal, MP3.com chose to settle, but that only brought more lawsuits from publishers now demanding their cut. Sapped of cash, MP3.com crumbled and sold what was left to Universal. To the major labels it was business, but digital music fans saw something else. They witnessed the old media powers very quickly destroy a relatively deep-pocketed new media enterprise over a consumer-friendly innovation.

8. The record industry cheats it artists: Courtney Love and Janis Ian speak - The RIAA always says it exists to protect the artist, but many artists themselves have debunked that. Back in 2000 Courtney Love was quoted in the NY Times. "Stealing an artist's music without paying for it is absolute piracy," she said. "And I'm talking about major-label recording contracts, not Napster." Love detailed step-by-step how her record label systematically cheated her of due royalties. Love's experiences were echoed by other artists, including several influential pieces by Janis Ian, and commentary exploded both online and off. Already disaffected, music fans were utterly disgusted and the perception that the record labels don't pay their artists became "common knowledge" and another justification by users to patronize the ever growing file trade services.

9. Payola Scandal - A prime example where the major labels self-righteous stand against file sharing was undermined by the exposure of illicit activities on their part. Major label credibility took a big hit here.

10. The RIAA sues little girls and the dead - When the major labels launched the first wave of lawsuits against file sharers in 2003 one of those caught in the net was 12 year old Brianna LaHara, the daughter of a single mom living in public housing. The suit outraged many online and drew immediate sympathy to the plight of all those targeted by these suits. It didn't stop the strategy of suing file traders, which continued. The RIAA has yet to live down the lawsuit it filed a year-and-a-half later against 83 year old Gertrude Walton. The lobby accused the woman of making over 700 songs available on the Internet. The problem is that the West Virginia native, who hated computers, was not living in her home at the time of the alleged file sharing, but several feet under the ground. She was dead. The RIAA's credibility slid further. The suits, which continue to this day, probably did more to perpetuate the image of the RIAA as blind corporate thugs than anything else. Lawsuits against living adults like Patricia Santangelo and Tanya Anderson were not any better. The interview that Tanya gave NPR where she claimed RIAA lawyers called her daughter's school pretending to be the child's grandmother to collect information served as a public advertisement against buying records.

11. Hillary Rosen named most hated person in music - How many people can name the head of the tobacco or gun lobbies? Heck, how many can't name the Vice President of the United States? Few lobbyists ever carried as much name recognition as the RIAA's Hillary Rosen who Wired magazine dubbed The Most Hated Name in Music. That so many people knew her name - and concurred with Wired's description - exemplified how bad the industry's image had become. Rosen left the RIAA shortly after this dubious recognition.

12. Major labels versus Internet radio - The record industry does not receive performance royalties from terrestrial radio stations, but through deft legislation it was able to extract performance rights from Internet radio. Through the RIAA spin-off body, SoundExchange, the labels demanded huge fees designed not only to maximize revenue, but to knock out all but the most deep-pocketed Net radio entities. Mid-sized and small broadcasters fought back, going on the offensive by reaching out to their sizeable audiences and painting the major labels as greedy bullies. Most visible was the Webcaster's day of silence, which brought further awareness to their plight. The battle rages on as does the anti-SoundExchange rhetoric spewed from these webcasts.

13. Grey Tuesday - John Lennon once said "Music is everybody's possession. It's only the publishers who think people own it". So I think it's safe to say that John would have approved of DJ Danger Mouse's Grey Album, a limited edition remix of Jay-Z's Black Album and The Beatles' White Album. But Danger Mouse did not get permissions to utilize the Beatles' work and when it came to the attention of EMI, who own much of the Beatles' back catalog, the label immediately tried to suppress it. The label called the work theft and demanded all copies be destroyed. In response to this attempt to stifle his creativity, the artist with help from the digital protest site DownhillBattle inaugurated Grey Tuesday, a 24 hour protest calling for hundreds of sites to post the Grey Album for free distribution for 24 hours. Within a day 97 sites signed on to host the work for the February 24, 2004 protest. By February 23rd almost 200 sites agreed to "Go Grey" including the EFF (Electronic Frontier Foundation). In that one day over a million tracks were served, thrusting Danger Mouse into the spotlight while generating further consumer contempt for the major labels. To fans it was just another example of label oppression of the artist.

14. MGM v. Grokster - Grokster's Wayne Grosso and Kazaa's Nikki Hemming were less patrons of consumer fair use rights and more opportunists looking to make the big score, but tens-of millions of US file traders were firmly on their side as the case went through appeal after appeal. The P2P applications were victorious in the second and third highest courts in the US, but the Supreme Court added a new standard called active inducement that was designed to strip away any altruistic façade these services might try to wrap themselves in. With a Supreme Court win both the record and movie industries felt vindicated. Grokster closed and KaZaa has all but been abandoned by users. But, two years after the decision it is apparent that it has done little to curtail file sharing. Users tuned out both the court and the major labels and just shifted to new applications, LimeWire being far and away the favorite.

15. Steve Jobs calls major labels greedy - In 2006 Apple's contract with the major labels to supply iTunes with music was up for renegotiation. The labels made it clear they planned to raise track prices dramatically, with some execs calling for $2.50 downloads. With one word Jobs disarmed them by pitting the labels poor image with against Apple's stellar one - he called them greedy. That word reverberated not only through the Net, but through Wall Street who see paid downloads as the only source of growth for the record industry. With 3/4th of the paid download market and 2/3rds of the digital media portable market the Street sees Apple as a visionary leader of tomorrow's media evolution. Jobs comment insinuated that the major labels were strategically ill-prepared for that evolution.

16. The Sony BMG copy protection scandal - Not only were the labels early use of digital rights management unwieldy and poorly conceived, they showed utter contempt for the consumer. This came to a head in 2005 when Sony BMG attempted to add DRM to the CD, a format not designed to work with digital rights tools. The company hired First 4 Internet who developed Extended Copy Protection (XCP) as a solution. The problem was that XCP utilized a rootkit as part of the protection mechanism, a device created by hackers to obfuscate their illicit activities. When a CD was played on a computer the disc secretly loaded the rootkit onto the system, exposing that system to attack. It was ironic that a tool that Sony introduced to protect intellectual property undermined it for many government, corporate and consumer PCs. When the rootkit was unmasked by security researcher Mark Russinovich in October 2005 it created a maelstrom on the Internet. Sony BMG initially denied the rootkit's existence, a move that only fueled rising anger against the company. The news hit the mainstream press late, but with a fervor. Sony BMG was soon faced with withdrawing millions of CDs at the height of the holiday season, lawsuits from several state attorney generals and a public admonishment from the Bush Administration who told Sony BMG "It's your intellectual property -- it's not your computer". The company still feels the repercussions, recently settling with several states. But the effects of this very public fiasco may be even farther reaching as the incident taught many to now fear a once innocuous item like the CD. Shortly thereafter single digit CD sales drops became double digit drops for all of the big labels. Coincidence? Maybe. Maybe not.

17. Prince Delivers 3 million CDs through London tabloid - Covermounts, the practice of giving away free CDs attached to a popular magazine or newspaper, are common in the UK. Just check out Brit import Mojo magazine at the local Barnes and Nobel. They offer a different CD every issue. Usually, these CDs carry compilations of older hits, but when Prince decided to give away his new album Planet Earth it sparked outrage from the industry. Prince worked a deal with the Mail on Sunday where he stamped out millions of CDs himself and sold them presumably at a very modest profit to the paper. Newspapers, which are losing readers, are regularly looking for ways to increase circulation and the Mail on Sunday jumped at the opportunity. The end result is that 2.8 million papers were sold that day, a one third increase in circulation. It also means almost 3 million CDs of Planet Earth were shipped in a single day in a year where albums have topped the weekly charts with less than 100,000 CDs sold. "The Artist formerly known as Prince should know that with behavior like this he will soon be the Artist Formerly Available in Record Stores," Entertainment Retailers Association co-chairman Paul Quirk told USA Today. Sony BMG reacted angrily, pulling out of its deal to ship the new CD to UK record stores. Considering that Prince probably made more money for himself with this scheme because of the high volume, he proved that name artists can profit outside of the traditional retail chain arrangement. Paul McCartney's direct deal with Starbucks also bypassed both big label and record store and Madonna is looking to make a similar move. Before now only a big label could move so many CDs so quickly. If established artists can do it on their own that only makes the old ways of doing business look more obsolete.

The lingering after effects of several player strikes showed the major sports franchises what can happen when the fan becomes dissatisfied. Today many music fans are unhappy. Can anyone honestly say that poor goodwill has had no affect on CD sales? Can anyone say that the examples above have had no affect on this goodwill?

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